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Review reveals underperformers

SONS of Gwalia, Austal, Iluka Resources, Clough, Woodside and Burswood are among the best known companies in Western Australia.

They are also notable under-performers in the annual WA Business News TRUDO survey of total share-holder returns (TSR).

A mix of adverse external trends and management miscalculations has battered these companies.

To varying degrees, they have restructured their businesses and in nearly all cases it appears the worst is behind them.

The problems at some of these companies also serve as a warning to investors – just when everything seems to be travelling well, companies can fall into a deep hole.

Sons of Gwalia has been through this experience over the past 18 months, with weak earnings and a plunging share price.

The sharp downturn can be illustrated by looking at its TSR. In the year to June 2003 it was -61.1 per cent, while in 2001 it was +75.4 per cent.

The company has been adversely affected by weak markets for mineral sands, production problems in its gold division and losses on its gold and foreign exchange hedges.

Last week it reported an annual profit of $34.5 million, down from $57.2 million in the prior year, and also suspended its dividends.

The only major WA stock with a worse TSR performance last year was ERG, which had a return of -73.3 per cent.

The current year should be a lot better for ERG, which has completed a major capital reconstruction and won a number of large ticketing contracts.

Austal’s TSR last year was -31.3 per cent, continuing a run of poor returns for shareholders.

Last week’s announcement that Austal’s consortium was preferred tenderer to build the Royal Australian Navy’s 12 new patrol boats should help to improve future earnings, however.

Like Austal, engineering group Clough is another company whose overall results can be ruined by problems with one or two large projects.

It has foreshadowed an after-tax loss of about $10 million for the past financial year and the market will be seeking some guidance from new managing director David Singleton when he presents the results this month.

Mineral sands miner Iluka Resources had a TSR last year of -13.1 per cent, as the group was marked down for its flat earnings profile and heavy capital expenditure plans.

Gaming and resort company Burswood has had more than its fair share of bad luck over the past two years, with the Bali bombing, SARS and global terrorism. It has also achieved a very low win percentage on its ‘high roller’ international commission business. The company recently reported a near halving of net profit to $11.1 million. Its TSR last year was -1.7 per cent.

 

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